No Jurisdiction Over Out-of-State Firm

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A Pennsylvania federal court has considered whether the court had jurisdiction over out-of-state brokerage firm based on the conduct of a salesperson whose license was held by the firm.

In 2007, Ronald and Valerie Resh (“Investors”) purchased a commercial truck stop in Pennsylvania from BF Oil, LLC for three million dollars. The Investors received advice from a real estate salesperson (“Licensee”) who claimed they would receive an annual ten percent return from the truck stop. The Licensee also helped the Investors arrange financing and the appraisal for the transaction. The appraisal had valued the property at $3 million.

The Investors later learned that BF Oil was controlled by the Licensee and that the Licensee had recently purchased the truck stop through BF Oil for $1.7 million. They also learned that the tenant who held a long-term lease was insolvent, as the tenant was unable to perform on the lease and declared bankruptcy after making only three rent payments. Unable to lease the property, the Investors eventually defaulted on their loan. When the bank tried to foreclose the loan in Pennsylvania court, the Investors filed a seven-count counterclaim naming various parties, including the California brokerage firm which held the Licensee’s California real estate license (“Brokerage”).

Although the case started out against six defendants, eventually all of the other defendants were dismissed except for the Licensee and the Brokerage. Even though the Licensee never responded to the Investors’ lawsuit, the court eventually dismissed him from the lawsuit because the Investors had failed to seek judgment against him after the court had warned them about the need to do so.

The Brokerage argued that the Pennsylvania court lacked personal jurisdiction over the Brokerage, a California real estate brokerage firm. The Brokerage asserted that it had no involvement with the Licensee’s actions in Pennsylvania and so the Brokerage had no contact with the state. All of the parties agreed that the Licensee would be subject to Pennsylvania law if he was still part of the case, and so the issue for the court was whether the Licensee was acting on behalf of the Brokerage when he was working with the Investors.

The United States District Court for the Eastern District of Pennsylvania dismissed the Brokerage from the lawsuit because the court lacked jurisdiction over it. Since the Brokerage did not conduct business in Pennsylvania, the court could only have jurisdiction over the Brokerage if the evidence showed that the Licensee was acting within the scope of his agreement with the Brokerage.

The Investors submitted evidence showing that Licensee’s California real estate license was associated with the Brokerage. However, the Investors did not submit any evidence to show that the Brokerage had any involvement with the Investors’ Pennsylvania transaction. In order for the Brokerage to be liable for the Licensee’s actions, the Investors would need to show that the Licensee was acting within the scope of their agency with the Brokerage.

The court found not only did the Investors not submit evidence showing that the Licensee was acting within his agency relationship with the Brokerage, the evidence suggested that the Licensee was acting outside of that relationship. Pennsylvania license law prohibits out-of-state licensees from acting within the state, and neither the Brokerage nor the Licensee held a Pennsylvania license. The Investors also offered an unsworn affidavit in which they claimed that the Licensee had referenced the Brokerage during the transaction, but the court did not find a single reference to the Brokerage in the Investors’ deposition testimony. Looking at all the evidence, the court found that the Investors had failed to demonstrate that the Licensee was acting within the scope of his agency relationship with the Brokerage and therefore the court lacked jurisdiction over the Brokerage.

Resh v. Realty Concepts, No. 11-CV-01924, 2016 WL 447057 (E.D. Pa. Feb. 5, 2016). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].